A guide to the Annex on Agriculture

The Chair­man of the WTO’s Gen­er­al Coun­cil (Ambas­sador Oshi­ma of Japan) pub­lished a pro­posed ‘frame­work’ for an agree­ment on the key top­ics of nego­ti­a­tion in the Doha round on Fri­day. In this post I am attempt­ing to sum­ma­rize the pro­pos­als for the most impor­tant of these topics—the reform ofworld agri­cul­tur­al trade—using as lit­tle jar­gon as pos­si­ble. The pro­posed ‘frame­work’ takes the place of the agree­ment that was not reached at last September’s Can­cún meet­ing of WTO. If adopt­ed at the next Gen­er­al Coun­cil meet­ing of WTO at the end of July, it will form the basis on which the nego­ti­a­tions will con­tin­ue. In fact, there is like­ly to be anoth­er long pause in the talks over the peri­od to next March while the US elec­tions take place and the cur­rent Euro­pean Commission—whose man­date expires in a few months—is replaced. The impor­tant annex on Agri­cul­ture, sum­ma­rized below, has been draft­ed by the Chair­man of the Agri­cul­ture Nego­ti­at­ing Group (Ambas­sador Gross­er of New Zealand) after the Mem­bers of the Group proved unable to come up with their own frame­work for agri­cul­ture. The text of the full Frame­work pro­pos­al is avail­able “here(link to the ITCSD site: a pdf file about 100k)”:http://www.ictsd.org/ministerial/cancun/docs/JOB(04)-96.pdf h4. Intro­duc­tion The text begins by recall­ing that the pur­pose of the nego­ti­a­tions is to adopt reforms that will result in ‘sub­stan­tial and effec­tive cuts in pro­tec­tion and trade-dis­tort­ing sup­port’. The Doha deci­sion added some qual­i­fi­ca­tions to that objec­tive that are repeat­ed in the Annex: there must be ‘oper­a­tional­ly effec­tive’ pro­vi­sions that allow spe­cial treat­ment of devel­op­ing coun­tries’ inter­ests as they affect their devel­op­ment goals, and some ‘non-trade’ con­cerns such as ani­mal wel­fare issues and envi­ron­ment should be tak­en into account. The Annex adds two non-con­tro­ver­sial prin­ci­ples that go beyond the Doha man­date.

“Cred­it”

The start­ing point for reform will be the _bound_ lev­els of Mem­bers’ com­mitt­ments on bor­der pro­tec­tion, domes­tic sup­port pay­ments and export sub­si­dies made at the end of the Uruguay Round in 1995.

This rec­om­men­da­tion builds-in ‘cred­it’ for reforms in coun­tries that have already opened their mar­kets by more than the amount they promised in 1995 or have reduced their expen­di­ture on farm or export sup­port by more than they promised—as many have. This is only fair, of course, and it’s a prac­tice that encour­ages coun­tries to go ahead with reforms between rounds of WTO nego­ti­a­tions, con­fi­dent that they won’t be _weakening_ their nego­ti­at­ing posi­tions.

But the con­se­quence of this ‘cred­it’ pro­vi­sion is to _reduce the impact of reforms_ by the extent of the ini­tial ‘slack’ rep­re­sent­ed by the cred­it. For exam­ple; if a coun­try is oblig­ed to cut a tar­iff by 30 per­cent from the bound rate, but has already reduced it by 20 per­cent from that rate, then its oblig­a­tion will be only to achieve anoth­er 10 per­cent reduc­tion. The reforms even­tu­al­ly adopt­ed will _seem more ambi­tious on paper_ than they will be in the mar­ket place.

“Har­mo­niza­tion”

The sec­ond new prin­ci­ple con­firmed by the Annex is that coun­tries with high­er lev­els of pro­tec­tion and sup­port will have to make big­ger cuts. This prin­ci­ple applies in the Annex at both the lev­el of coun­tries and at the lev­el of indi­vid­ual pro­grams: the high­er the lev­el of pro­tec­tion the big­ger the cut will be.

But the har­mo­niza­tion prin­ci­ple is weak; it *does not over­ride* the prin­ci­ple of ‘spe­cial and dif­fer­en­tial treat­ment’ for devel­op­ing coun­tries. Many of these coun­tries have much high­er aver­age rates of pro­tec­tion for agri­cul­ture than the indus­tri­al­ized coun­tries. They will not have to make greater cuts in thi­er bar­ri­ers, how­ev­er, despite the ‘har­mo­niza­tion’ prin­ci­ple.

The har­mo­niza­tion prin­ci­ple also seems to be over­rid­den by the pro­vi­sions for ‘sen­si­tive’ prod­ucts and devel­op­ing coun­tries’ ‘spe­cial’ prod­ucts.

The intro­duc­to­ry sec­tion of the Annex also con­tains a ref­er­ence to the con­cerns of devel­op­ing coun­try cot­ton pro­duc­ers. It doesn’t promise any spe­cial rules for cot­ton trade reform but it gives cot­ton a high pri­or­i­ty under the mech­a­nisms described in the reform frame­work. h4. Domes­tic sup­port The pro­posed deci­sion on domes­tic sup­port pay­ments con­firms that the prin­ci­ple of ‘har­mo­niza­tion’ will apply to the cuts that indus­tri­al­ized coun­tries will have to make in trade-dis­tort­ing farm sup­port pay­ments. High­er lev­els of sup­port mea­sured in ‘absolute or rel­a­tive terms’ will have to be cut more than low­er lev­els of sup­port. The cuts to sup­port will be made using a ‘tiered’ for­mu­la appo­rach that will see deep­er cuts made in the high­er tiers (groups of prod­ucts with high­er lev­els of sup­port). This pro­vi­sion will be wel­comed by the USA that has insist­ed that reforms should take first address the much high­er lev­els of sup­port paid by the EU before impos­ing cuts on its own sup­port pay­ments. The ‘cred­it prin­ci­ple’ will also apply; the lev­el of sup­ports will cut from the lev­el agreed in 1995, not from any low­er lev­els that might apply today. The objec­tive will be ‘sub­stan­tial and effec­tive reduc­tion’ in both the Total lev­el of trade dis­tort­ing support[1] and in each indi­vid­ual sup­port com­po­nent (e.g. sup­port pro­grams for a par­tic­u­lar crop). This means that it should be dif­fi­cult to meet the objec­tive of sub­stan­tial over­all reduc­tions in sup­port by cut­ting some pro­grams heav­i­ly and some not at all. The ‘tiered approach’ will describe the min­i­mum lev­el by which over­all sup­port must be cut in each tier, high­est to low­est. The over­all sup­port cut for any tier is the sum of the cuts in the three dif­fer­ent com­po­nents: the cuts in Total sup­port, the cuts in de min­imis levels[2] and reforms to the blue box[3]. Coun­tries can make big­ger cuts in one of these com­po­nents than in anoth­er, as long as they meet the require­ments for * the min­i­mum cut in each com­po­nent * the min­i­mum cut in the over­all lev­el for the giv­en ‘tier’ of sup­port There will be dif­fer­ent for­mu­las for cuts to the Total, de min­imis and blue-box pro­grams. The sup­port pro­grams that make up the Total lev­el of sup­port will be indi­vid­u­al­ly ‘capped’ at the prod­uct lev­el to make sure that there is no switch­ing of sup­port from one prod­uct to anoth­er as the total is cut. The pro­posed rules on domes­tic sup­ports are thus more coher­ent across the whole agri­cul­tur­al sec­tor than the pro­posed rules on mar­ket access, which allow greater ‘flex­i­bil­i­ty’ for ‘sen­si­tive’ and ‘spe­cial’ prod­ucts.

Blue box

This cat­e­go­ry of sup­port was intro­duced at the last minute in the Uruguay Round to acco­mo­date the Euro­pean Community’s ‘com­pen­sa­tion’ pay­ments to farm­ers whose pro­duc­tion ‘enti­tle­ments’ were being cut as part of the 1992 reforms to the Com­mon Agri­cul­tur­al Pol­i­cy (CAP). The pay­ments were linked to pro­duc­tion (and there­fore could be _trade-dis­tort­ing_ by def­i­n­i­tion) but were designed, in fact, to main­tain the income of farm­ers whose pro­duc­tion was being _cut_. They were clas­sic agri­cul­tur­al _adjustment_ pay­ments, not the sort of thing that the WTO should be _penalizing_.

The USA wants to rede­fine the blue box so that its own ‘counter-cycli­cal’ adjust­ment pay­ments qual­i­fy as ‘blue’. Under the new rules, which extend the def­i­n­i­tion of ‘blue­ness’, these pay­ments will also be con­sid­ered ‘blue’. But the over­all size of a country’s ‘blue box’ will be capped by a factor—to be negotiated—related to his­tor­i­cal lev­els of agri­cul­tur­al pro­duc­tion. This is intend­ed to ensure that no Mem­ber can min­i­mize its oblig­a­tions to cut sup­port by re-defin­ing its sup­port pro­grams from the ‘amber’ to the ‘blue’ box.

Green box

These are pay­ments that may have some farm-income sup­port com­po­nent but are not like­ly to have any trade-dis­tort­ing effects because they do not direct­ly relate to farm­ers’ pro­duc­tion deci­sions. ‘Green’ pay­ments are not sub­ject to any cuts. The frame­work pro­pos­es to tight­en the cri­te­ria for the ‘green box’ but does not say how.

h4. Export com­pe­ti­tion The main
objec­tive of this sec­tion of the Frame­work is to define and ‘lock in’ the elim­i­na­tion of all forms of agri­cul­tur­al export sub­si­dies as a head­line result of this round of WTO nego­ti­a­tions. The key to secur­ing the elimination—already agreed in prin­ci­ple by the main sub­sidis­er, the Euro­pean Community—is to estab­lish the poli­cies cov­ered by the agree­ment and the date for elim­i­na­tion.

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Cov­er­age

Export sub­si­dies as they are record­ed in the sched­ules of com­mitt­ments of indi­vid­ual coun­tries estab­lished at the end of the Uruguay Round, plus gov­ern­ment export cred­its or cred­it guar­an­tees repayable at terms longer than 6 months, plus sub­si­dies or under­writ­ing pay­ments by state trad­ing entre­pris­es, plus food aid that is used as a means of sur­plus dis­pos­al or that has the effect of dis­plac­ing com­mer­cial sales.

These def­i­n­i­tions seem to leave some room for fur­ther refine­ment in the nego­ti­a­tions. For exam­ple, the ques­tion whe­hter the monop­oly sales pow­ers of state trad­ing enter­pris­es is itself a ‘sub­sidy’ has been left for fur­ther nego­ti­a­tion. A note­able omis­sion from the pro­posed cov­er­age is the use of dif­fer­en­tial export tax­es that the USA main­tained is equiv­a­lent to an export sub­sidy.

Date for elim­i­na­tion

Still to be nego­ti­at­ed. The elim­i­na­tion is to be achieved pro­gres­sive­ly in annu­al install­ments prob­a­bly over a peri­od dic­tat­ed by the EC’s cur­rent ‘Agen­da 2000’ reform pro­gram, which con­cludes in 2010.

There is a pro­vi­sion for longer time-frames for the elim­i­na­tion of any export sub­si­dies used by devel­op­ing coun­tries (pre­sum­ably, via STEs) and for the use of longer-term—that is, sub­sidised—cred­its in the case of food exports to the poor­est coun­tries and devel­op­ing coun­tries depen­dent on food imports. Final­ly, a ‘spe­cial cir­cum­stances’ clause will be nego­ti­at­ed that would allow the use of longer-term export cred­its in cas­es such as the 1997 Asian finan­cial mar­kets cri­sis. h4. Mar­ket Access The har­mo­niza­tion prin­ci­ple will be imple­ment­ed in the for­mu­las for improv­ing mar­ket access (cut­ting tar­iffs and expand­ing the vol­ume of tar­iff quotas[4]) by estab­lish­ing ‘tiers’ or ‘bands’ of tar­iffs. Deep­er cuts will apply to the high­er tiers. The cred­it prin­ci­ple will also apply; cuts will be made from bound tar­iff rates. As part of the ‘spe­cial and dif­fer­en­tial’ prin­ci­ple, no least-devel­oped coun­try will be asked to make any reduc­tions in tar­iffs (com­ment: no econ­o­mist would say that this “con­ces­sion” is like­ly to be help­ful to coun­tries such as Bangladesh). The lev­el of the duty apply­ing to (each?) tar­iff will define the ‘bands’. But the num­ber of bands and the thresh­olds for each band are to be nego­ti­at­ed lat­er. The sin­gle advance in any of this is the pro­pos­al that there be only one ‘approach’ to cut­ting tar­iffs for all coun­tries and all tar­iff bands. But what that approach will be—and whether it will be a sim­ple math­e­mat­i­cal forum­la such as a ‘swiss’ or a ‘lin­ear’ cut, or whether it will be a more com­plex hybrid formula—is left for lat­er deci­sion.

Sen­si­tive prod­ucts

The bulk of the sec­tion on mar­ket access is tak­en up by an attempt to define the excep­tions to the ‘sin­gle approach’ to cut­ting access bar­ri­ers.

The annex cre­ates an cat­e­go­ry called ‘sen­si­tive prod­ucts’ that has not had any for­mal place in any for­mer WTO agree­ment on agri­cul­ture. The def­i­n­i­tion of this cat­e­go­ry is very loose but more pre­cise in the case of indus­ri­al­ized than in the case of devel­op­ing coun­tries. The list of ‘sen­stive’ prod­ucts is to include, at most, the list of prod­ucts that are pro­tect­ed by tar­iff quo­tas. Unfor­tu­nate­ly, this is a long list in economies such as the EC, oth­er West Euro­pean coun­tries and North Amer­i­ca: at the end of the Uruguay Round, the EU had tar­iff quo­tas cov­er­ing 87 agri­cul­tur­al prod­ucts, the Unit­ed States 54 and Korea 67. But Nor­way had 232 prod­uct-lev­el tar­iff quo­tas and Poland 109. Fur­ther­more, vir­tu­al­ly all such prod­ucts have very high duties as part of the ‘out of quo­ta’ tar­iff. Esti­mates by the Eco­nom­ic Research Ser­vice of the US Depart­ment of Agri­cul­ture shows that the aver­age over-quo­ta tar­iff rate is 128 per­cent or more than twice the sim­ple aver­age rate of agri­cul­tur­al tar­iffs. Many coun­tries that main­tain tar­iff quo­tas have out-of-quo­ta rates more than twice, and as high as *six times* the aver­age of their own agri­cul­tur­al tar­iff. The aver­age in-quo­ta rate is 63 percent[5].

The degree of lib­er­al­iza­tion pro­posed for this poten­tial­ly long list of high­ly pro­tect­ed prod­ucts is *remark­ably weak*, appar­ent­ly reflect­ing the insis­tence of the EC that the pro­vi­sions for ‘sen­si­tiv­i­ty’ should be inte­gral to the lib­er­al­iza­tion meth­ods. Import com­pe­ti­tion is to be ‘sub­stan­tial­ly improved’ for all sen­si­tive prod­ucts by a com­bi­na­tion of cuts to the out-of-quo­ta tar­iff and expan­sion of the vol­ume of the tar­iff quo­ta (the vol­ume that ben­e­fits from the low­er in-quo­ta duty rate). But the amount of improve­ment in access implied by the word ‘sub­stan­tial­ly’ is left for future nego­ti­a­tion with the addtion­al caveat that “the final nego­ti­at­ed result [must also reflect] the sen­si­tiv­i­ty of the prod­uct con­cerned”.

Oth­er ele­ments

Sev­er­al impor­tant deci­sions are left for deci­sion after fur­ther nego­ti­a­tion: whether there will be pro­vi­sions adress­ing the issue of *tar­iff esca­la­tion*, the con­tin­u­a­tion of the *spe­cial agri­cul­tur­al safe­guard*, the improved *admin­is­tra­tion of tar­iff quo­tas* and the elim­i­na­tion of *in-quo­ta tar­iff rates*.

Devel­op­ing Coun­tries

Devel­op­ing coun­tries will be required to make small­er cuts to mar­ket access bar­ri­ers in each of the tar­iff ‘tiers’. In addi­tion to being able to des­ig­nate ‘sen­si­tive’ prod­ucts that will be sub­ject to a “sub­stan­tial” lev­el of improve­ment in mar­ket access includ­ing an expan­sion of tar­iff quo­tas, devel­op­ing coun­tries will be per­mit­ted to des­ig­nate a ‘cer­tain num­ber’ of tar­iff lines as ‘spe­cial prod­ucts’ for which no quo­ta expan­sion will be required. They will also have access to a ‘spe­cial safe­guard mech­a­nism’ whose actions (block­ing imports to some degree on a tem­po­rary basis) will be defined in fur­ther nego­ti­a­tion.

fn1. The so-called Total AMS is the sum of all trade-dis­tort­ing pay­ments. ‘AMS’ stands for the ‘aggre­gate mea­sure of sup­port’: it aggre­gates pay­ments up to the sec­tor lev­el, for exam­ple all live­stock pro­grams. The Total AMS sums the AMS in every sec­tor: live­stock, grains, hor­ti­cul­ture etc etc. fn2. A ‘floor’ lev­el of sup­port that is not sub­ject to any reform; the floor will be low­ered by this agree­ment fn3. A cat­e­go­ry of pay­ments to pro­duc­ers that are part of a “pro­duc­tion lim­it­ing” pro­gram: these pay­ments are said to be ‘blue’ because they’re a sort of mix­ture of ‘green’ and ‘amber’ box pay­ments fn4. A tar­iff-quo­ta is a two-part tar­iff; one part has a high rate of duty—usually so high that it pre­vents com­pe­ti­tion from imports—and one part has a much low­er rate of duty. But the low duty rate is restrict­ed by vol­ume: after a cer­tain num­ber of tonnes import­ed (or units import­ed) the low rate of duty is no longer avail­able and any addtion­al imports must pay the high­er duty rate. Of course, this restricts imports to the ‘in quo­ta’ vol­ume in almost all cas­es. fn5. “Pro­files of Tar­iffs in Glob­al Agri­cul­tur­al Markets”:http://www.ers.usda.gov/publications/aer796/ (AER-796) page 25

Peter Gallagher

Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.

He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher